In the face of pandemic drawbacks, social media, and virtual meetings—both locally and internationally—have taken on a new significance as individuals attempt to maintain their daily routines. Companies are adopting the digital phenomena of eCommerce even more as customers turn in increasing numbers to its contents. With this in mind, let’s discuss some of the ongoing challenges and regulations around tax compliance for online businesses in the Philippines.
What is Tax Compliance?
A decision made by an individual or corporation to abide by the tax regulations of a particular nation is known as tax compliance. Individual compliance with tax rules is essential to tax legal compliance regardless of the legislation that is implemented.
What is Tax Evasion?
This is precisely the contrary of tax compliance. Taking action made by an individual or business to evade or underpay taxes that are levied is known as tax evasion, and it is against the law.
Status of Online Business Tax Compliance in the Philippines
In the interest of justice, the Department of Finance (DOF) argued that internet sellers ought to be held to the same tax laws as owners of conventional brick-and-mortar businesses. According to Finance Secretary Benjamin E. Diokno, the Bureau of Internal Revenue (BIR) collects withholding tax from online vendors based on the equal treatment concept; thus, it is not considered an added tax.
When will Online Business Tax Compliance in the Philippines Commence?
Romeo Lumagui, Jr., Commissioner of BIR, had stated that by the end of the fourth quarter of 2023, the tax authority hopes to start obtaining an admissible withholding tax from its digital collaborate businesses.
Regulatory Reminders on Online Tax Compliance in the Philippines
Digital commercial transactions have already been revolutionized by advances in technology, creating an endless marketplace that makes carrying out business easier and more productive for both suppliers and buyers.
BIR Revenue Memorandum Circular No. 60-2020
Revenue Memorandum Circular (RMC) No. 60-2020, entitled “Obligations of Persons Conducting Business Transactions Through any Forms of Electronic Media and Notice to Unregistered Businesses,” was issued by the Bureau of Internal Revenue (BIR) in response to the administration’s efforts to reaffirm vendors on the internet of their tax liabilities in light of the recent spike of eCommerce transactions and business movement.
Mandates of RMC No. 60-2020
- Requires all owners of firms operating on digital or computerized internet-based platforms to officially register their companies with the BIR and pay taxes for sales.
- Companies are urged to disclose their previous activities and settle the applicable taxes voluntarily.
- In addition to partner merchants, additional parties covered by it include online service companies, transportation providers, gateways for payments, and additional intermediaries.
Types of Online Business Transactions
- Online Businesses or Retailers: A company proprietor that markets goods and services via various Internet platforms
- Online Classified Ads or Advertising: Advertising goods and services on web pages and online communities
- Online Auction: Allows an item or solution to be auctioned to a buyer who is prepared to place the greatest offer
- Online Intermediary Services: Those that encourage and boost internet retailers’ sales
Requirements of Online Businesses
- Maintaining official books of accounts and other accounting documents detailing corporate dealings
- Withholding taxes where necessary
- Submitting the necessary tax returns
- Remittance of accurate taxes owed
It is your business’ legal obligation as an online merchant to always provide your clients with a legal receipt or invoice for sales as verification of the transaction. You have to give the credit card company a receipt of acceptance if payment is made using a credit card. Additionally, you must provide the aforementioned credit card business an affiliate fee (10% net of expanded withholding tax).
Business Registry with the BIR
The process of registering an Internet business in accordance with tax regulations is identical to that of registering a conventional traditional company.
You can be asked to provide the following paperwork to BIR:
- Barangay Clearance for Business
- Official Identification (e.g., Driver’s License)
- DTI/SEC Registration Certificate
- Mayor’s Permit
- Evidence of Address, such as land title documentation or a lease
Once you have obtained a Certificate of Registration, the next step is to obtain an Authority to Print receipts and invoices. This may include an automated accounting system or a paper-based book of accounts. Which solution is suitable for your internet business will rely on your specific business plan.
Standard Tax Compliance in the Philippines for eCommerce
According to BIR, both online and offline firms must abide by the current tax rules and regulations on the acquisition and sale of products and services.
The following are some typical taxes that Filipino internet businesses must file and pay:
- Value Added Tax, both monthly and quarterly (for firms earning above P3M in a fiscal year)
- Quarterly Percentage Tax (not subject to VAT for companies making P3 million or less yearly)
- Withholding Tax on Salary
- Creditable withholding tax and increased withholding tax
- Income Tax: Quarterly and Annual
Incentives for Tax Compliance in the Philippines
To promote the growth and economic contribution of small enterprises, especially eCommerce retailers, the Philippine government provides tax benefits. This section will describe the tax breaks that online retailers in the Philippines are eligible for, as well as how to take advantage of them and what requirements need to be met.
Benefits
- VAT exemptions for modest enterprises: VAT is not required to be paid by micro and small firms whose gross yearly sales or receipts do not exceed Php 3 million. Both offline and internet firms can take advantage of this incentive.
- Tax Amnesty Program: A tax amnesty is another service that the administration provides to overdue taxpayers who did not pay their taxes in a given year. Taxpayers who clear their tax obligations under this scheme will be eligible for remission on all levies and penalties.
- Income Tax Exemptions for Small Businesses: Income tax is not due by micro and small enterprises whose annual gross sales or receipts do not exceed Php 3 million. Both offline and digital businesses can take advantage of this incentive.
Filing Deadlines
- BIR Form No. 1700: Filed on or before April 15 of each year covering income for the preceding taxable year.
- BIR Form No. 1701: Filed on or before April 15 of each year covering income for the preceding taxable year.
How to Avail Tax Compliance Incentives in the Philippines
You must register your firm with the Bureau of Internal Revenue (BIR) and specify that it is a micro or small enterprise in order to submit a request for exemptions from both VAT and income taxes. In addition, you have to keep a record of finances and other documents that the BIR requires.
B2B and B2C Tax Compliance in the Philippines
RMC No. 55-2013
Regarded as the first official regulation pertaining to eCommerce. Even the new terms used by internet companies to describe the kinds of transactions they carry out—business-to-business (B2B), business-to-consumer (B2C), and consumer-to-consumer (C2C)—are acknowledged.
Republic Act 9178 Section 7
Section 7 of RA 9178, also known as the “BMBE Incentives and Benefits Law,” exempts certain enterprises from filing income tax and the Minimum Wage Law provided that their financial assets are not in excess of PHP 3,000,000. The Department of Trade and Industry will grant BMBEs a certificate entitling them to operate income tax-free for a period of two years. After two years, the permit can also be reissued.
Revenue Regulations No. 11-2000
The regulation emphasizes the concept of the “marginal income earner,” which exempts gross revenues under PHP 100,000 from filing taxes during the course of a calendar year.
E-Commerce Businesses’ Liabilities
Faulty Items or Services
When it comes to deficient items and services, the Consumer Act is applicable. Vendors on the internet and traders who fail to adequately protect perishable merchandise or are unable to properly identify the supplier, contractor, company, or seller of a product that is defective will be held accountable.
Infractions of Intellectual Property
The legitimacy, authenticity, and/or authorization of the commodities offered by vendors, traders, and marketers must be confirmed by eCommerce platforms, digital marketplaces, and similar organizations.
Intellectual property rights holders (also known as “IP Holders”) may demand that they remove posts that contain illegal items or material. If the IP Holder demands that the e-commerce platform remove their content, and the platform does not comply, the IP Holder may alert IPOPHL so that proper action can be taken.
The guidelines highlight the legal environment in which internet companies function and act as advisers to these companies concerning their legal responsibilities under current consumer-related legislation and rules. In summary, value-added tax, income tax, percentage tax, and tax rebates are among the tax rules and regulations that internet merchants in the Philippines have to go by.
Businesses selling online can guarantee the prosperity and durability of their enterprises by comprehending these tax regulations and steering clear of frequent tax errors. The Guidelines are a positive move toward promoting the growth of eCommerce in the Philippines since customer trust is essential to the expansion of any industry.
